The Indian arm of Royal Dutch Shell, Shell India Pvt. Ltd, which has a 7% share in the Indian lubricant market by volume, plans to invest about Rs469 crore to double its manufacturing capacity in the country to cater to rising demand on the back of growing automobile sales.
Shell Lubricants, or the Shell group companies in the lubricants business, has a 100,000 tonnes manufacturing facility at Taloja in Maharashtra and is planning an additional capacity of another 100,000 tonnes.
“India contributes 3-4% of the global demand of 38.5 million tonnes per annum and is growing at around 6%. Though the last year has been full of volatility, we continue to grow strongly here. We have around 10% share in the Indian lubricant market by value,” said Tim Ford, vice-president sales, Asia, Shell Lubricants.
The size of the Indian lubricants market is 1.7 billion litres a year, making it the fifth largest lubricants market in the world by volume after the US, China, Russia and Japan. Shell Lubricants recorded a revenue of Rs800 crore in 2008.
According to data from the Society of Indian Automobile Manufacturers (Siam) for August, the latest available, the worst may be over for the Indian auto sector, with sales of large trucks, cars and two-wheelers posting hefty increases spurred by more road tenders, cheaper loans and the coming festive season.
Siam reports despatches to dealers and not retailers.
“We have the outline plan in place for the new manufacturing capacity and plan to operationalize it within the next 12- -24 months. It will require an investment of $100 million,” said Donald Anderson, country head, lubricants, Shell India.
“India occupies a unique geographical position and sits between the markets of Far East and West Asia and the manufacturing facilities can also service those markets,” added Ford.
Passenger car sales, which have risen sharply in the last few months, rose by a quarter to 120,669 units in August. In the last few months, car makers have rushed to launch new models as well as to give face-lifts to old ones.
Given the demand for power generation equipment in the country, Shell is also looking at supplying speciality lubricants and oils to equipment manufacturers.
It is already supplying to manufacturers such as Wartsila India Ltd, the Indian unit of the Finnish equipment maker, Pune-based Thermax Ltd, and China’s DongFang Electric Corp., which is active in the Indian power sector.
The firm expects this segment to grow, with India planning to install an additional capacity of 78,577MW by 2012, and another 100,000MW by 2017.
“The lubricant market in India has largely been a oligopoly business with large share controlled by the government-owned oil marketing companies (OMCs). One needs to have lube oil base stock, which is produced by refineries, which in turn are largely owned by the OMCs. Shell will have to develop its retail presence to tap the market,” said Manish Bagla, senior manager at audit and consultancy firm PricewaterhouseCoopers.
Shell is worried about spurious sales.
“These are the penalties of a growing brand. We would like to see some toughening of patent and copyright law in India. The same problem is in other growing economies,” said Ford.
Samar Srivastava contributed to this story.